Hope for first-time buyers as 10% deposits to return

The Residential Property team at HWP.ie estate agents found a new report, in the Irish Times stating the following;

FIRST-time home buyers will be able to get on the property ladder with a 10pc deposit, despite Central Bank plans to limit the size of individual mortgages, the Irish Independent can reveal.

The Taoiseach has made a public intervention in the developing row over the Central Bank plans to cap mortgage lending.

Home ownership should remain an “attainable ambition for young credit-worthy families”, Enda Kenny said during a speech in Dublin.

Controversy has been raging over Central Bank proposals to cap most mortgages at a maximum of 80pc of the price of a house.

However, the Irish Independent understands the Government is now planning to get around the plan through a new insurance scheme.

Under plans that are still to be teased out, a portion of any new home loan to first-time buyers will be guaranteed by the State.

It is based on schemes in Canada, Finland and the UK.

It comes as new figures show house prices nationally have increased by 15pc in the past year, though the pace of the increase is slowing in the capital.

The Government scheme will mean lending is a lower risk for the bank, and can be achieved using a mortgage insurance scheme for first time buyers, paid for by lenders but with the Government standing behind it.

The plan will allow first-time buyers to purchase homes with deposits of 10pc of the house price, half of what will be needed if new Central Bank rules kick in from January without any intervention.

The idea is to restrict the scheme to buyers of new-build homes in order to stimulate the construction sector.

Crucially, from the Central Bank’s perspective, the element of risk-sharing means lenders would still have the 20pc cushion against house price falls that the planned lending cap is designed to ensure.

The planned boost to mortgage funding is also expected to provide certainty to the construction industry, which is reluctant to build homes because of tight profit margins.

But it’s not clear how soon the government plan will come on stream.

The Central Bank plans to cap most home loans at 80pc of the value of a property from January under surprise proposals published earlier this month. That is to insulate banks from the effects of any new bubble. The plan is currently going through a consultation process that is due to end on December 8.

If it goes through unchanged, house buyers will need savings of €60,000 to purchase a €300,000 home – the price of an apartment or small house in most of Dublin, for example. The Central Bank plan would also limit the size of a mortgage to three-and-a-half times a family’s income, which is less controversial.

Unlike other state agencies, the Government has no power to order the Central Bank to change tack.

But in his speech, the Taoiseach insisted that home ownership should remain within reach of ordinary families, even as he warned against a return to reckless lending.

“There can be no going back to the past, when reckless mortgage and property lending by banks wrecked Ireland’s financial stability, resulting in massive taxpayer bail-outs and job losses.

Ambition

“At the same time, this Government wants home ownership to remain an attainable ambition for young, credit-worthy families. Without access to mortgage credit, young families will place increasing demands on the rental and social housing markets,” he said

He was speaking in Croke Park at a construction conference organised by Grant Thornton, where he resurrected the idea of introducing a mortgage guarantee scheme.

That was first floated in May, in the Government’s Construction 2020 plan to revive the building sector.

The original idea would have allowed for loans of up to 95pc of the price of a newly built house.

It appeared to have been quietly shelved over the summer, and was not contained in the Budget.

But the Irish Independent understands the Taoiseach’s speech was a signal that a modified version of the plan is back on the table – though now requiring a 10pc deposit.

Mr Kenny said other countries had been able to avoid property bubbles without blocking people from the market.

“In the UK, Finland and Canada, for example, mortgage insurance markets have been developed to support mortgage lending to first-time buyers, while also improving the quality of such lending and reducing the risk to the banks themselves.”

Finance Minister Michael Noonan will now ask the Oireachtas Committee on Finance to prepare a report on the issue, he said. But he gave no timeline for action.

Tanaiste Joan Burton has already questioned the rules proposed by the Central Bank.

Environment Minister Alan Kelly described the 20pc requirement as “excessive” and called for a 15pc deposit target.

A spokeswoman for the Central Bank said yesterday that its consultation process remains open, and that the scheme it originally outlined could yet change before it comes into force.

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